World Bank DevNews
October 28, 2002

Maseru, the sleepy capital of an African mountain kingdom, seems an unlikely theatre for an unfolding bribery scandal involving Western multinationals —among them Canada’s Acres International Ltd.— that has rocked the global construction industry, reports the Globe and Mail (Canada). The Oakville, Ontario-based engineering firm, convicted last month of bribing the former head of one of Africa’s biggest water projects in return for contracts worth $21 million, was in Lesotho High Court on Monday for sentencing.

It now faces a fine of up to $4 million, Lesotho’s estimate of the ill-gotten profits Acres received as a result of payoffs to Masuphe Sole, the now-sacked chief executive officer of the Lesotho Highlands Development Authority. “We argue that if the fine is anything less than Acres’ profits, the company will benefit from corruption,” a member of the prosecution team said.

The 78-year-old firm, which strongly denies corruption charges and plans to appeal the case next year, stands to lose not only the money but an otherwise clean reputation. If it loses the appeal, it could be blacklisted from future projects backed by the World Bank and other development agencies. The BBC, AFP, Reuters and the Financial Times also report.

The Times of London notes that most of the construction companies alleged to have paid bribes to Sole in the first phase of the project are also working on the second phase of the scheme, which is expected to be completed around 2020. It was largely financed by South African banks, although the World Bank contributed $150 million.

Acres is the first of three Western engineering firms in the dock for their roles in the project, a series of dams and tunnels that pump water to neighboring South Africa and produce electricity for Lesotho, says the Globe and Mail. The Crown has completed its case against Germany’s Lahmeyer International GmbH and is waiting for the court’s ruling on the company’s application for dismissal. The trial of France’s Spie Batignolles, which was due in court early next year, has been delayed to await the outcome of appeals by Acres and Sole.

Acres hopes for acquittal on appeal, notes the story. George Soteroff, a Toronto public relations specialist speaking for the company, says he believes that the Lesotho High Court was not qualified to hear a case of such complexity and that the country’s Court of Appeal, which comprises experienced South African judges, “will validate our belief in our innocence.”

Yesterday’s sentence was welcomed by the Canadian campaign group Probe International, notes the Guardian (UK). “This sends a message that bribery does not pay,” its executive director, Patricia Adams, said.]

The news comes as La Tribune (France) reports that corporate circles in Europe are closely following discussions in Vienna, at the UN’s discreet Center for International Crime Prevention (CICP), on establishing a UN convention against corruption. Such a convention would extend to the entire world the OECD convention against corruption that was adopted by rich countries in 1977.

The rigorous OECD convention, which has come to carry the force of law in developed countries, should ensure that the UN convention is not greeted with indifference, says the story. It also includes rigorous clauses, requiring all states, for example, to put in place systems through which persons holding public office would have to disclose their wealth. The convention also deals with private companies, pushing them to adopt stricter norms on accounting and internal monitoring.

The project will need to be realized over the long term, says the story, noting that once the text is finalized, it would have to be voted on by the UN, and then ratified by national parliaments.

Meanwhile, reports the Financial Times, there are tangible signs of growing US interest in western and central Africa, whose large oil reserves are seen by analysts and lobbyists as a bulwark against disruption to Middle East crude supplies. A series of visits to western Africa by senior US officials over the past few months has prompted questions about US intentions and the likely impact on a region notorious for corruption and poor governance.

Greater US involvement in the region would bring scrutiny from human rights groups over issues such as the suppression of democracy in oil exporters including Gabon, where President Omar Bongo has ruled for 35 years, and Equatorial Guinea, which was criticized in a State Department report last year for shortcomings in basic human rights, political freedom, and labor rights. The US could also come under further pressure to combat widespread corruption in big oil-producers such as Nigeria and Angola—in the latter of which an estimated $1.4 million of state revenues were unaccounted for last year, a figure confirmed this month by the IMF. Writing in the International Herald Tribune , Ira M. Millstein, who chairs the Private Sector Advisory Group of the Global Corporate Governance Forum, and World Bank Vice President for Private Sector Development and Infrastructure Nemat Shafik say that in developing countries, where Western standards of accountability have long been touted as the model to follow, there is now a risk of cynicism and disenchantment with the rich world’s failure to practice what it preaches. Strict adherence to the doctrine of Western corporate governance has long been hammered home as one of the most important prerequisites for poor countries to get capital and foreign direct investment.

The lesson from recent scandals is that all business, whether in developed or in developing economies, should adhere to the same sound principles. If there is an upside, it is the effect that the crisis has had in spurring action to improve accountability. Progress is reflected in initiatives by international organizations to foster appropriate corporate governance frameworks.

One such group is the Global Corporate Governance Forum, which assists developing economies on corporate governance. Forum members include individual donor countries, the OECD, the World Bank Group and the Commonwealth. The forum’s Private Sector Advisory Group, which includes many of the world’s largest investors, supports regional corporate governance meetings in Africa, Latin America and Eurasia. These are not just talking shops, but are intended to deliver tangible results. An example is the recent creation of the Novo Mercado on the São Paulo Stock Exchange. Companies which choose to list on it commit themselves to a stricter set of rules, including equal rights for all shareholders, higher standards of disclosure in annual reports and improved procedures for election of the board of directors.

The international business community is far more aware today of the need for improved governance, write Millstein and Shafik. Globalization has underscored the need for international coordination to ensure that the private sector competes on a fair basis, and that growth and prosperity are shared and sustained.